Market analysts have cautioned that the recent South African rand fluctuations could affect Malawi’s trade balance.
Reserve Bank of Malawi (RBM) figures show that between April and July, the rand dropped from K60 to about K54 but later the kwacha depreciated to trade at K48.43 against the rand in September then K50.61 in October and K51.89 in November.
As of Tuesday, the kwacha traded at K55 to the rand, according to an RBM Financial Market Development report.
In an emailed response to a questionnaire on Tuesday, Small and Medium Enterprises Association (Smea) president James Chiutsi said the fluctuations have a bearing on businesses because of the local currency uncertainities.
“South Africa is one of Malawi’s major trading partners and most of the raw materials for production do come from South Africa, the instability of the rand, therefore, makes costing of Malawi products unstable too. SMEs are, therefore, affected due to this uncertainty,” he said.
Commenting on the issue, Cross Border Traders Association president Esther Tchukambiri said their gains from businesses have been affected.
“The present situation is bad. For instance, we budget for a certain amount when we travel but before you know it, the rand has taken a different direction. In the end, we are making losses because we just cannot raise prices to customers. We are bearing the cost of this,” she said.
Presently, there are speculations that the Reserve Bank of South Africa may increase interest rates, which could make the rand stronger coupled with the weaknesses in the United States (US) dollar.
But other than this, the ongoing trade war between the US and China is putting a lot of pressure and speculation on how emerging market currencies like the rand will react.
Economic commentator Alick Nyasulu noted that given that South Africa is Malawi’s major trading partner, these speculative elements are filtering themselves into the kwacha-rand fluctuations.
He said: “Any currency instability is bad especially when the rand appreciates since Malawi’s trading with South Africa is predominantly import related and may lead to exchange losses. The key for businesses is to manage their currency shocks by diversifying their portfolio.”
Speaking separately, Catholic University economics lecturer Gilbert Kachamba said considering South Africa is the country’s major trading partner, the present stance of the rand affects the economy.
He said the kwacha and rand have a direct bearing on exports and imports which in turn have an impact on the country’s balance of payments.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) director of business environment and policy advocacy Madalisto Kazembe earlier noted that with most of the country’s imports coming from South Africa, a drop or rise in the value of the rand has a bearing on the country’s businesses.
“If the rand drops, this will mean that there will be an increase in imports from South Africa as the currency is worthy less,” she said. n